This book is authored by Stephanie Radwan who has been a student of mine in Introduction to Microeconomics, Fall 2004.

The reasons for this assignment are: Learning is a Cumulative procedure. The students learn a little bit every day, without noticing that they are accumulating the knowledge. Many times, in my professional life, I have been approached by my students who frequently claim: I have not learned anything in this course! Putting the accumulated knowledge in writing, brings to the students attention the enormous amount of knowledge that they have gradually acquired. It is a matter of the fact that in our country, the students are not learning the basic tools for their success; especially at high school level. They learn Everything except how to read, how to listen, how to write, and how to calculate! That is why I have chosen these skills as my curriculas core competencies. Authoring this book improves the first three above mentioned communication skill of my students. To further improve the communication abilities of my students, they are taught how to build a web-site and enrich it with their accumulated knowledge. You may visit Stephanies web-site at: www.geocities.com . This book, undoubtedly, is not a perfect book in economics. It is, hopefully, the First Try in a series of books published by Stephanie in the future. It is a pleasure for me to hear about the future published scientific works of Stephanie. This will give me the satisfaction to claim that I was the one who taught her how to improve her communication skills at first place. Bijan, Moeinian, Docteur es sciences economiques.

Why United States is number one?

America has much to offer its citizens, including entertainment, a variety of food, and freedom of opportunities. Many risk their lives to set foot on America, only to be captured and sent back to their country or die in the process, just for a breath of opportunity and freedom. The United States is not known as the "land of opportunity" for nothing. Marteni Kempf from France was not allowed to upgrade their technology, therefore she came to America where she had the freedom to build and create anything she wanted. The Minitel computer network is known as a dinosaur because there business's are controlled by the government. We, here in America, are allowed by the government to be the "artist of our lives" and are able to dream up our own business as well as actually act on it. Some might comment that we have crime, racism, and poverty. Although, 97% of our population below poverty have color TV's, two-thirds have microwave ovens, and food, which are items that some other poverty-stricken countries only dream of.

With the huge amount of diversity, our country is learning to get along and have allowed interracial marriages. Our news seems to always lead with some type of crime story, but surprisingly we have slightly lower rates than other countries. In Germany, skinheads are trying to rid their country of immigrants. The French want the arabs expelled. We are not the only country that has problems with crime. No country is perfect, but America tries to give each person an equal opportunity to have success as well the freedom to decide what their success is. The biggest factor that I believe sets America apart from other countries, and may even be number one, is because people from other countries risk their lives to touch the soil that many Americans take for granted because we have so much freedom and even though they are sent away, they continue to try to have what America has and gives to its citizens, freedom and opportunities.

10 Principles of Economics
There are 10 principles of economics that will be discussed. First, people in society face tradeoffs by choosing one resource over another. Second, the cost of something is given by the value of what you gave up to have it.

For example, a person who decides to enter college for four years and pay tuit opportunity to make money from a job. Nothing is free, even time has value. Thirdly, rational people think at the margin.

People need to learn to manage time to be able to maximize profits by allocati more important to you. Fourthly, individuals in society respond to incentives.

For instance, if government decides to stop taxes for a weekend, most rationa subways to take advantage of saving money.

Fifthly, trade can make everyone better off because most recieve what they wa bargaining.

Specialization, relying on others in society that specialize in that ability, give co under control.

Sixthly, markets are usually a good way to organize economic activity. Prices are rationed in markets and forces ots of bargaining and browsing. Resources are allocated through firms and households.

Firms decide what is produced and how it's produced, whereas households de what to buy.

The invisible hand works the economy, forces society to run smoothly by havi to maximize profits. Seventh, government can sometimes improve or fail the economy.

By not allocating resources, air pollution can cause or worsen health problems be fixed?

Although, the invisible hand theory does not always promote fairness or ensur enough to eat. Social workers for children, for example, do not get paid as much as say a pro athlete. The market does have its imperfections, but it is running smoother than most countries. Eighth, countries standard of living depends on ability to produce goods and services.

The United States yearly income has been significantly higher than other coun because we have a better quatlity of life, for example, more cars and longer life

Productivity is key and we do everything we can, not only have the brains to b also have the knowledge to figure out how to channel it into the free market f Ninth, prices rise when the government prints too much money.

The more money that is circulating the economy pushes prices up as well as p more money.

Our country has maintained stability with money supply by controlling the am economy. Tenth, society faces short run tradeoff between inflation and unemployment.

The Phillips Curve is a direct relationship between inflation and unemploymen unemployment decreases and vice versa.

Tradeoffs, opportunity costs, marginal thinking, incentives, trade, markets, gov and the Phillips curve are the basic concepts as well as the intellectual backbon making.

Confronting Scarcity
A very important concept that many Americans should understand is that producing more of one good or service means producing less of another good or service and in turn that nothing is free, everything has value. 6

For instance, building a concrete wall for a prison takes away from building roads and highways. The customers and archietects need to decide what is more important at the time, as well as the cost of building that concrete wall. Half of the planets rain forests are used for furniture and houses which can be seen as an enviormental disaster, although someone needs to make this decision by who needs what more. Rain forests are decreasing by 200,000 acres a day and it is projected that 80-90% will be gone by 2020. Some believe that this is an ineffienct use of valuable resources. Also, many habitats are lost forcing many animals to suffer, but a plus is that carbon dioxide is released which contributes to the global warming effect. Other positive effects are that farming, if a rain forest is destroyed to build a farm, feeds millions of people. Economic growth means that an economy must produce goods and services that benefit the most people and at the lowest opportunity cost. Comparative advantage also benefits each country in the world by producing goods that we have the resources and low opportunity cost for and then trading with other countries. For example, Germany has a high quality precision camera and the United States is leading in the personal computer revolution. 7

If an economy or individual can produce a good or service at the lowest opportunity cost, then it can trade this good or service with another individual, so it gives this other individual time to use his talents to produce something else that he will specialize in. Global economy is also an important concept that keeps economies running smoothly. This term means that international trade is increasing rapidly since World War II, partly because the cost of international communication and transportation have declined significantly. The production possibities curve shows that without international trade, countries are limited based on only its technology and resources and each country benefits by trade because they cannot produce and serve everything. Brazil and Columbia, for instance, has a comparative advantage with coffee because of their climate, topography, and abundance of low wage labor. Also, the coffee beans are made in the mountains because of the volcanic soil creates a better taste. Other countries do not have these resources to make coffee, therefore trade allows countries to enjoy greater wealth. International trade is a longstanding force in the world's economy and is the core of global economic prosperity. Nations must focus its talents or factors of production on products that offer them a comparative advantage.

Individuals, as well as nations, are motivated by the vast amount of possibilities.

Supply & Demand

Market efficiency is basically depends on how flexible prices are and also how supply and demand act freely. For instance, a farmer market is a good example because many sellers in which competition takes place and prices vary for customer satisfaction. Consumers create the demand whereas the suppliers create the price. The demand graph is a representation of an inverse

relationship of price and quantity holding all other factors constant. The supply graph is a representation of a positive relationship between price and quantity holding all other factors constant. Equilibrium price is defined as the balance between supply and demand as well as when quantity demanded equals quantity supplied. Price is not the only factor of a consumer needs, the taste of good and also the quality of a good or service is important. An efficient market reacts to the demand and supply curves to greaten their profits. Surplus is when the quantity supplied exceeds quantity demanded. A seller, to adjust this problem, could drop the price to create a higher demand. On the other hand, a shortage is when quantity demanded is greater than quantity supplied and one cause of this is that the price of the product is lower than it needs to be. Temporarily change in quantity supplied or quantity demanded can cause a shortage or a surplus until the price is adjusted. Price controls are made by the government to aid the economy more efficiently. A price floor is described as a minimum legal price set by government above the equilibrium price. This then creates the quantity supply to be greater and helps producers to raise their revenues. The maximum legal price set by government below the equilibrium price describes a price ceiling. This causes the quantity demanded to be greater and may help, but can possibly hinder the market efficiency. Price controls do not always help control a market efficiently, such as President Nixon in 1973 after the Vietnam War. Ticket brokers help fans that want to go to select games, but not all games. They try to find tickets for these people as well as people that want to sell certain tickets. They try to meet the demand for both parties. Some do not have the time to make phone calls or put an ad in the newspaper to sell their unwanted tickets and as a result ticket brokers make a profit for aiding these customers. The price of ticket depends on how well the team is doing, which would 10

raise the price is it is doing decent, and how far along in the season it is. The ticket for a certain team fluctuates from game to game. Ticket brokers have a legal business, are insured, and actually have an office compared to scallopers, which are individuals who perform their business under the table or on the streets. Both of these providers give services to those who want tickets after a game is sold out. When the demand for a ticket drops, the price drops as well. Buyers can reduce the quantity demanded when a price has risen for a particular good or service. Although, it is more difficult to increase the price of a necessary good or service, like bread or water, and most luxury items, as well as rare goods and services, are always higher in price because there is more of a demand. Supply, demand, and equilibrium affect ticket brokers as well as consumers and all parts of economics, which is a part of our daily life. In 1956, Congress authorized funding for 42,000 miles of interstate highways that would give connection to all areas of the country. For the first time, travelers would be able to drive from one end of the United States to the other on continuous highway. Driving soon became a national pastime. It showed individualism, independence, and freedom. Cars became a huge icon and were seen as stylish, sexy, and big. In the United States during the fifties and sixties, automobiles dominated society, making people feel optimistic and upbeat, and they just kept getting bigger and bigger. This time period was known as the era of conspicuous consumption. At this time, gas was cheap and plentiful, with gas prices as low as seventeen cents a gallon. Although, most cars, in the sixties, could only hold 10 miles to the gallon compared to today, a car can hold over forty miles to the gallon. To some people, like Norma Allen who grew up during this time, having gas in the tank was more important [to her] than food. In 1960, five countries formed together to organize OPEC, organization of petroleum and exporting counties, and 11

soon after six more countries joined. OPEC produced more than 55% of the world oil supply in 1972 and dominated the oil supply. The world oil supply came from the Persian Gulf, 38% to be exact. The United States was heavily dependent on oil from outside the country and the cost to produce gas began increasing, forcing gas prices to rise as well. The demand for small, more efficient cars grew larger everyday as the cost to produce more gas did. Manufacturers were not ready and could not supply the huge demand as quickly as it rose. Finally, Audis were produced, a car that could hold forty miles to the gallon. Norma Allen announced that saving became a joy because she would not have to fill up as often either. President Carter made dealing with the oil crisis a national priority. In 1980, the demand for OPEC fell and soon only accounted for 30% of the world oil supply. The United States oil consumption dropped and the price for barrels of oil decreased from $38 to $12. The oil crisis was finally over. Even though gas prices have risen since then, overall they have not increased dramatically considering total income and inflation. Although, a prediction for 2060 is that we will require thirty times as much oil and demand will exceed the supply for oil. I believe that if this will be a problem, someone should start doing something about it. The sooner a problem can be fixed, the better the economy is.

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Issues and Methods of Economics

Economics is a subject you can only learn by working through problems yourself. It is also a study of choices that are available to society and answers questions such as What industries will be expanded?What are the costs and benefits of free trade??and What ways are most effective to reduce unemployment?? Every society faces a problem 13

of choices because resources are limited. Resources are labour, raw materials, machines, and factories. A nation production possibility curve shows points on a graph that are attainable and unattainable. It is a bowed out curve that marks the boundaries of all choices that are possible and impossible to produce and good or service. All points on or inside the curve are attainable and all points outside the curve are unattainable. The points on the curve are most efficient to society and create the most output as well as using all the resources available and in an efficient manner. Points outside the curve are what economists call inefficient. The negative slope of the curve shows that we must make a choice or a trade-off to produce what best effects the economy. If we want more of one item, we have to use more resources to produce that item and this means having fewer resources for the other item, or even giving up the other item. Businesses should and do try to have more of everything by using more of their resources to get more of each good. We get stuck in a prolong recession or an inefficient point with unemployed men and women, unused machines and factories, and/or bad use of resources. The distribution of these goods might be such that one particular group has a lot while others receive almost nothing. Policies intend to redistribute wealth toward the less fortunate and force the economy to move a point on the curve down to a point inside the curve. Economists measure costs by the production possibility curve. The cost of increasing our food consumption, for instance, is that we then must give up this many manufactured goods. This is saying that by using more resources towards food consumption, we must give up a certain amount of resources that were being used for manufactured goods. Another way to look at this concept is a student that attends a university gives up the money that he could be earning from getting a job. We do not know that this value would be, but most would say that a college degree will increase your income 14

in the future. This is called an opportunity cost because this student is giving up a salary from a job to increase in knowledge at a university. The opportunity cost of any action is the value of the next best forgone alternative. As years go by, we can find that we produce more of everything because we have a greater use of resources and this pushes the production possibility curve outward. Two ways to increase the amount of goods produced and services made are technology and obtaining more resources. To increase technology, we could use productive methods by involving increased specialization. The more workers that do precise tasks for long periods of time get good at them and can then produce more in a shorter time. This has been one of the most important ways nations have become more wealthy. To obtain more capital goods is investment. By withholding some of our resources from producing either food or manufactured goods, we can still use leftover resources to invest in more machines, factories, and resources. We will then have higher productivity and a higher standard of living. Investment goods are buildings and machines. Consumption goods are concerts and sandwiches. The more we give up in consumption today, the more machines we will have available, so that we can produce even more consumption goods in the future. Investment is a decision that involves short-term pain for a long-term gain. Positive statements are things that can be settled by an appeal to these facts. They are usually true or false statements. An example is lower taxes lead people to give more money to charity. Normative statements involve words such as should?or ought.?For instance, we ought to give money to charity. These statements do or do not relate to a person values. Let take a look at this statement: Minimum wage lowers are good because they redistribute income from the rich to the poor. The normative part of this sentence is it is good to redistribute income from the rich to the poor.?The positive part of 15

this statement is minimum wage laws redistribute income from the rich to the poor.? In the unskilled labor market, firms are the demanders of labor and want to hire people to produce goods. Households are people who have hours available to work and consider trying to find a job or the suppliers of labor. The demand curve for this graph is downward sloping or negative. The supply curve for this graph is upward sloping or positive. Every person buys more of something when it becomes cheaper and buys less as it becomes more expensive. The labor supply curve shows how much people would be willing to work at different possible wages. Most would give up more of their time if the pay they receive is higher. Overtime wage rates are higher than normal wage rates by a simple observation. The level of employment and level of wages get determined by interaction between these two curves. Excess demand means unfilled job vacancies, so firms are not very satisfied with this outcome. Firms will try to take labour from each other by offering higher wage rates. Wage rate rises as firms compete for workers and more people offer their services to firms as wage rate increases. When the supply and demand curves intersect, this means the quantity supplied equals the quantity demanded and called equilibrium. There is no need to change a person behavior with their services in the job market and there is no unemployment. Major concepts of this video were: Economics is the study of choices where resources are scarce. A society must make trade-offs because we can have everything and resources are limited. Trade-offs are made by understanding the concept of opportunity costs and considering the production possibilities curve. By distinguishing between positive and normative statements we can make better choices. Economists focus more with positive statements. The supply and demand curve show how firms and households interact. The are the main issues and methods of economics.

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Supply and Demand

Supply and demand are a huge part of how businesses set their prices and react towards customers needs and wants. Price and quantity are major factors of the supply and demand curve. This curve shows that when prices rise, quantity declines and when quantity rises, a price declines. As a problem in the economy occurs, such as a 17

huge drought or the oil prices double in America, we look for ways to economize. Ways of economizing include changing prices, producing more, using less, creating a new way or product to satisfy a need and all these factors shift the supply and demand curve in some way. In 1975, the worst drought hit California and many wished and preferred rain to sunshine. Water has no substitute and as reservoir levels fell dramatically, this placed many Californians to ration their water supply by cutting back to 46 gallons per day, two-thirds less than normal. New water rates were instated and individuals had to make decisions on how to use their scarce supply of water. They drank water and used it for cooking purposes, but discontinued to wash their cars or their clothes for a period of time. Well workers during this time did a phenomenal job to supply people with as much water as possible. People take water, as well as other commodities, for granted until they are lost. A good rule of thumb is what you save, you dont have to buy. Just one additional unit of water made these Californians very happy, meaning that the marginal utility of water was very high at this time. The law of diminishing marginal utility explains why were willing to pay more for a commodity when it has a high marginal utility. The opposite is also true, when the marginal utility is low, there is more available to use of this particular commodity. Oil prices doubled due to inflation in the American oil industry during the Nixon administration. Since they kept rising, one incentive was to produce new oil and after 1972 we were free to follow the higher world price. Sam Lefrak, a New York city landlord, heard the knock of opportunity and declared war on OPEC. He stated OPEC drove prices high and this gives us reason to go deeper and drill here for oil and gas. In 1975, in an effort to protect consumers from dramatic oil prices, President Ford put ceilings on all domestic oil. This only left us more dependent on imports. Government concern was rising 18

rapidly. Following Ford, President Carter took over and announced the fading out of domestic control on oil prices. Levels of drilling activity began as soon as decontrol was announced. The amount of wells that were drilled doubled from 2,000 to 4,500 quickly. As soon as the prices of commodities increase, consumers want to buy less and producers want to produce more. The law of supply and demand shows that when prices increase, consumers find ways to economize. They make decisions on how to save what they have and use the product to its fullest output. For example, during the drought in 1975, Americans in CA washed their clothes and their cars less than they normally would have. On the other side of the supply and demand curve, as prices rise, producers want to find ways to search and produce high quantities of a certain product. This is expensive and risky, but if they do it right and quickly, as soon as the product hits the market many will rush to buy it. When the price of oil rose, well drillers wanted to drill faster and more efficiently to put as much water out to the public as possible. The intersection of the supply and demand curve shows the price that producers should set and the quantity that they should produce. Although, not all industries behave this well because many factors, such as the government, OPEC, or even consumers, have an effect on the shifts of the supply and demand curve. Advertisement is one reason why we pay would be willing to pay twice as much for a product that is name brand. Many want the best of what is out here and the most for our money. I believe that if I am going to purchase a product, I want to like it and if it means paying five or ten more dollars, I will be willing to pay. Joe Nakash, president of Jordache jean company, brought the concept of tight and sexy jeans to the market and at first they told him that they did not need another jean company because there was not a high demand for jeans. Nakash decided to go to the source of the market, consumers or the ones who purchase the products, and 19

put the word out that he has tight and sexy jeans. This created such a demand for Jordache jeans that consumers asked for the brand by name. Jeans became a universal product after Nakash made his name known. Consumers are willing to pay premium for a product when everyone else jumps on the bandwagon. Jordache began the want for all jean companies to place their brand name on the back of their jeans. Nakashs company spent 50% of their profits on advertising, which holds a great risk on the companys future business. In 1965, consumers only bought one pair of jeans per capita and this value tripled after Jordache was brought to the market. Even though time and tastes change, the fact that Americans will pay premium for brand name items will not change for the time being. Many factors shift the supply and demand curve, therefore the curves never stay put. Variables that affect the demand curve are taste, income, and availability of other products. Similarly, the supply curve will change due to price and quantity. For example, when the price of oil soared upward in the 1970s, it also affected the cost of all sorts of industries that used oil. This forced an upward shift on the supply curve. The law of supply and demand is more of a way to analyze deep and underlying forces that affect prices of commodities, then determining those prices in any rigid way. The water we use, the clothes we buy, and the fuel we depend on are influenced by the supply and demand curve and the forces behind these laws of supply and demand. The interplay between supply and demand is at the very heart of our entire market system.

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Economic efficiency
Economic Efficiency allocates resources to people who are the most successful at gaining social power. People should and do try to get the most output for the least input as well as with efficient distribution. The free market pricing system is the purest form that consumers take the lead in this commercial dance. Efficient consumers look for the best deal for what they want.

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They want to be sure they are getting what the producer advertises. Producers want to show their item off as the best on the market and want to make a profit as well as give their customers what they want. Sellers must answer their own questions such as ake less profit or loose the sale??It an open air demographic of economic efficiency. The invisible hand is at work by determining what is produced, how much is produced, and keeping supply and demand in balance and all with the least amount of waste. ree market and invisible hand work so well together.?/FONT> The natural force that guides free market capitalism through competition for scarce resources also describes the invisible hand. In a free market each producer will try to maximize self-interest, and the interaction of consumers, leading to exchange of goods and services, enables each producer to be better off than when simply producing for themselves. During the late 1960s, paying for both the Vietnam war and programs of great society put pressure on prices and inflation became the national concern during the administration of Richard Nixon. Nixon tried to help the problem by fine tuning our fiscal and monetary affairs in order to control inflation without much managing of the economy. This method did not help. All economic officials decided to head to Camp David for two days, could not tell a soul, and figure something out. They decided on a wage and price freeze to help solve the problem. Nixon announces that they will berak the vicious cycle of spiraling price and costs. He ordered a freeze on all prices and ways for 90 days. In 1971, inflation reached what was considered a staggering four percent. The imposed temporary price controls only worked temporarily and then prices rose again. By 1973, there were boycotts and demonstrations against high prices. Questions arose like hould they return to the price freezes??But a wise official spoke up, ou cannot step into the same river twice.?Nixon imposed a ceiling 22

price on beef, pork, and lamb. We realize now that price controls did not work in 1973 and given the same circumstances, they probably would not work again. Economics usually make some assumptions about human behavior. People generally tend to act in their own selfinterest. Consumers might want to have the goods they possibly could get. But most of them realize that they have limited budgets. Ultimately, they must choose one good over another. In making these choices, they try to maximize their own welfare. Producers try to maximize their profits by using more efficient methods. When price rises, there is less demand. If oversupply occurs, price will then decrease. This convinces other producers to produce a similar item at a cheaper price. Ceiling prices are legal maximums on the price at which a good can be sold. They drive the producer out of the market and urge consumers to buy causing over demand. Floor prices are legal minimums on the price at which a good can be sold. Japan bombed Pearl Harbor, a huge surprise, and sparked World War II. During this time, prices rose extremely high as well as cost of living skyrocketed up to a 100%. Between 1940-1944, corporate profits nearly doubled from 6.4 to 10.8 billion. Price controls were enforced and most followed these controls, becoming very patriotic. Many used substitutes instead of higher priced items. For instance, women began wearing shorted, tighter skirts, using less material meant that it would cost less. Also, for many barbeques, people used horsemeat instead of beef. This was a success. Many people believed saving money was more trivial than the war itself. Next to bombing, rent controls appeared to be the next efficient way to destroy a city. World War II soldiers had to place to stay when they returned. Two hundred thousand additional housing units were needed for them. New York became very patriotic and understanding towards the soldiers?needs and lent a helping hand to soldiers, as they opened up room for them to live. There was a high need 23

for rent control because of the unusual shortage for housing. One person actually would abandon his apartment if it turned out to be uneconomical for him to own it. The higher the price, the more housing units are offered. The lower the price, the more demand there is for housing units. The equilibrium of price and quantity is where the supply and demand curves intersect.

Consumer Choice Theory

Consumer Choice Theory Consumer demand tells producers what goods and services to produce and how of them to produce. Price is a signal to consumers and producers. It gives information to consumers about cost of producing an item as well as information to producers about consumers are willing to pay for that item. Both consumers and producers tend to exhibit maximizing behavior. Businesses seek to maximize profit while

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consumers seek to maximize utility, or satisfaction. To do so, thy must evaluate each activity at the margin. Marginal cost is defined as cost of each additional unit that a company produces. Normally, most companies look at marginal revenue, what they want to try is to take the factors that they are producing and create a system in which the marginal cost equals the marginal revenue. Marginal decision rule is described as an employer that tries to determine whether or not adding this additional cost will produce the benefit that the employer thinks is needed. Efficiency condition is when you try to get marginal benefit equals marginal cost. 2K?bug became quite a scare in 1999 because many businesses were worried that their computes and technology would read the two zeros as 1900 instead of 2000. About 15% of US computers were expected to suffer critical failure as a result the millennium bug. This meant shutdown of business operations, a health hazard to individuals, or a significant loss of customers or revenue. Businesses struggled to repair their computer systems before the inflexible deadline arrived. An estimated 600 billion dollar issue, when it turned out to be a successful event. A utility is a concept that is difficult to measure and also something everybody experiences. It is also referred as satisfaction or pleasure and the more we get of one thing, the less it pleasures us. Given utility meaning satisfaction, total utility means total satisfaction from consuming a product, good or service. As more and more of a product is consuming utility, total utility rises, but by smaller and smaller amounts. This is a concept called marginal utility. Assuming consumers will spend within their budgets, utility maximization means they arrange their spending to achieve the highest utility possible. As the price of a good rises, the purchasing power of income falls. Because the purchasing power of income falls, you no longer can buy as much of that good in which the price has risen or other goods, so as price rises, quantity demanded falls. This is 25

known as the income effect. The substitution effect, as a price of a good rises, the quantity demanded of that good falls because it is relatively more expensive compared to other goods or substitutes. In order to maximize utility, consumers adjust their spending by purchasing more or less of certain items in order to maximize total utility when prices change. In a free market, utility maximumization and profit maximzation lead toward an efficient allocation of resources. Although, there can still be market efficiecy to occur, price must be determined by interaction of supply and demand and exclusive transferable property rights or ownership must exist. If these factors aren present, market failure occurs. Market failure comes in many forms and shapes. Monopoly, a form of market failure, is a sole seller of goods and services. Another forms are oglipoly, a few sellers, an externalitry, or even a public good. Highway systems are used on a daily basis by many people and make commuting, shopping, and traveling much easier for all of us. We do not pay direct user fees except on tollways, but some of our taxes may to go to highway construction. These are safer roadways, with quicker routes due to less traffic and are less gas expenses. Every $1 billion invested in highway construction results in over 42,000 actual jobs. Some want privatization of a highway to operate a highway with the idea or hope of making a profit, then that road would be operated efficiently, presumably would be maintained efficiently. So that people would want to use it. This would make less congestion on the highway because the highway would charge a fee that would make it sufficiently. It would cut down on people who use the highway. An example of a positive externality would be requiring teenage drivers to achieve a certain educational goal and not being able to drive until age 18 is a powerful motivator for students who are considering dropping out. An example of a negative externality involves a situation where something 26

that I benefit from impacts negatively upon you and again the traditional example has been air pollution.

Demand Theory: Household Behavior

As consumers we make decisions everyday, such as how many pieces of pizza we will have for lunch. The law of diminishing marginal utility is our basic psychological assumption. Economists assume that consumers buy goods because we get satisfaction from them and that a consumer goal is to maximize the satisfaction that can be had from a limited budget. We should know how satisfaction varies as a person buys more or less of any 27

good or service. The more people buy of any particular commodity, the more satisfaction or utility in total they will get from consuming that commodity, but the less subsequent units of the good will add to this accumulated total amount of utility. For instance, purchasing one or two slices you receive lots of satisfaction. But once you get full, you don get as much extra utility from you 3rd and 4th slice. This is an example of diminishing additional or marginal satisfaction. The household optimal purchase rule is defined as the marginal utility from each item is just equal to the price. So the total payment is just the price times a certain amount of units, so the consumer is getting a bargain. Free bit consumer surplus is the excess of total benefit over the total expenditure. If consumers are successful in arranging their buying, so that they maximize their satisfaction, then they be behaving as if they are following the optimal purchase rule, even if they don use economists language. We measure people

Theory of Firm
Why would a company change a key ingredient? Following WWII, studabaker had prosperous years and then suddenly was extinct in less than a decade. No business can guarantee a profit. How does a firm keep costs down? Coco-cola spends millions on advertising to make billions. It is a 23 billion dollar industry. They quietly changed a key ingredient and consumers had not even noticed the difference. How is this possible? How

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could such a prosperous company, like studabaker, lose business so suddenly? Coco-cola earned $420 million on sales of nearly $5 billion, but this giant corporation faced cost difficulties. The price of sugar was raising sharply, from $19 to a high of $70. In the United States, we drink the equivalent of 465 soft drinks per year/per person. Coke alone bought more sugar than anyone else in the world. Every one cent increase means about $20 million dollars. Sugar was seven cents a pound in 1979. Because American farmers produced corn so efficiently, refining those ears for sugar makes high fructose corn sweetner about 10% cheaper than sugar from beets or sugar cane. Any minute thing that you can shave off that makes the racer go faster the better off you e going to be in the market place. Manufacturers made the change very slowly, starting first with their minor product lines. As we made the switch, we ran thousands of taste tests to make sure consumers would not notice and then chemically analyzed everything, coco-cola admitted. Ulrich, part of the coco-cola industry, says that some people do not understand that high fructose is sugar. He goes on to say that there is cane sugar, beet sugar, and corn sugar, so it is sugar that was getting the impurities out because processing had not been there to do that. I see his point, but the fact is that coco-cola lied to society about the change and there could be some that are allergic to certain types of sugar. Manufacturers of soft drink companies, says economist Robert Barry, coke, pepsi, claim that it does not, that it is quite the same. Some would argue that. They used a different approach to get the same effect, argues Beverage Digest editor/publisher, Jesse Meyers. In 1980, Co could deliver product at substantially lower costs and maintain profit levels. Consumers didn taste the difference. Richard Gill explains the situation with soft drink companies and altering the key ingredient in soft drinks. The change of sugar to high fructose was a necessary change to cutting costs and sustaining profits. 29

Even without noticing the change in sugar, it still affected consumers. The cost of soft drinks were reduced due to substitution. Water in the United States comes to us through a network of dams, resevoirs, and pipes. In Africa, it is passed to one another from a stream or river by a bowl and is very unsanitary. One big reason for this difference is that labor is cheap and machinery in Africa, while labor is expensive and machinery is relatively cheap here. Suppliers will find the cheapest way to produce, while still making a profit. For instance, choosing high fructose over sugar as well as dams and pipes over expensive human labor. In 1948, Studebaker sales soared to 300,000, grabbing 4% of the market. Profits were more than 46 trillion. In 1852, five studebaker brothers began a business in South Bend, IN, that grew to become the largest manufacturers of wagons in the world. The company, around 1900, moved into the automobile business, first producing car bodies and finally buying the EMF motor company. The success of the first production car briefly placed studebaker as one of the big three car makers. The early boom years were followed by bad decisions about new models. The depression drove studebakers into bankruptcy. Raymond Loewy helped to make new cars. Studebaker did a tremendous job of redesigning a new concept in automobiles. The bullet nose model in 1949 added to Studebakers?success. People joked about the bullet nose, is it going backward or forwards? It was ahead of its time and a terrific car with great comfort and audacious looking. In 1952, they celebrated its centennial with the best year ever, selling about 335,000 cars, but then began its road to future profits took some turns for the worst. In 1953, again a radical change occurred. Ray Burnett, a national salesman of studebaker corporation, explains we ran into production problems. We had extreme difficulty in getting automobiles that were shippable and ready for the road. Consequently, demand was very heavy and there 30

was a lot of acceptance for the automobile. People became choosier of what car they bought. Studebaker didn have the money to create the fancy style consumers wanted at that point and soon went bankrupt. Production fell by two thirds. Studebaker then went into a partnership with Packett and became studebakerpackett corporation. The lark made 1959 a rofitable year.? The Ashbury Park Press, the first newspaper, started in central New Jersey and the population in Jersey became heavily populated. It expanded very quickly. In 1960, the Ashbury Park Press sold 27,000 newspapers a day.

Competitive Markets
Competition is a driving force in a market economy. Price and output decisions depend on competitive structures of a market. Changes in market conditions result in immediate response on part of buyers and sellers. In the real world, perfect competition is rare simply because having complete or perfect information is rare. Perfect competition provides basis for comparing efficiently of 31

other market structures. Perfect competition is based on certain assumptions: that it is easy for firms to enter and exit the market; a larger number of firms produce identical goods and face a large number of buyers; and that buyers and sellers have complete information about market conditions. Some tend to spend a little more for what they want than a little less for something they will be unhappy with. In a perfectly competitive market structure, it is easy for firms to enter and exit in the long run. Excess profits attract more competition, thus increasing market supply and lowering market prices, a boon to consumers. Ease of their exit allows firms to leave an industry if losses persist. The essence is: excess profits attract and losses decrease competitors. It is easy to enter the market, but its not easy to stay in it. In the long run, profits are driven to a normal level, or ero economic profit.?This happens because when profits are higher than normal, new firms enter the industry. That drives profits down. When profits are low, some firms exit and those that remain earn higher profits. So in the long run, you end up with this sustainable normal level with profit. A perfect competitive market is made up a large number of buyers and sellers. his is a market and not a store, and just like a stock market, prices can go up and they can go down.?The guy selling plants explains. If someone else sells same plant, same quality for cheaper, they need to adjust their price when they are selling theirs for a more expensive plant. In a perfectly competitive market, buyers and sellers are referred to as price takers, individual firms who take the market price as given. The interaction of supply and demand determines the price. Before a transaction, you need to have a buyer and seller who agree on price. When markets in equilibrium, there is a balance between quantity demanded and quantity supplied. If the price is too high, there is a surplus and that motivates sellers to lower their prices and they do. In a monopolistic competitive market sellers do control their 32

price to a certain extent. They can get away with higher prices. In a perfectly competitive market, complete information is available to buyers and sellers. Information can be obtained at low costs. Buyers and sellers engage in trade at market prices determined by intersection of supply and demand. As a consumer, information is not costless, and can be timely. You have to work in to doing just a simple price comparison. Perfect competition shares a key feature with other market structures. It maximizes profits or minimizes losses at output quantity where marginal revenue equal marginal cost. What we look at is how much produces another unit would cost versus how much it would add to cost. If it adds to more revenue than cost, then it would make profits rise, and it is a good idea. Marginal revenue ends up equaling marginal cost. If market price for one geranium is $5.00, then the marginal revenue is $5.00. If MR is $5.00 then profits will be maximize or losses maximize at output quantity where MC=$5.00. If MR = MC = Min ATC, then business will be producing efficiently. Marginal revenue is constant in perfect competitive markets, a horizontal line. MC is normally u-shaped. It is diminished at first because of division of labor then it rises because of the law of diminishing marginal return. Sandra explains, he price we pay for product is the amount that we value it at.?Marginal revenue tells us what value consumers place on last unit of product produced. MC tells us how much the last unit of product produced cost. If it were guaranteed that the firms will stop producing where marginal revenue equals marginal cost. Then were guaranteed that they will produce exactly what the consumer wants. In short fun there are four possibilities: excess or economic profit, breakeven or normal profit, operating with loss, if things don get better, the business ends up shutting down. All market structures have same profit possibilities in short run. Total fixed cost do not vary with competition. Total variable cost 33

begins when firms engage in prodution. The sum of TFC and TVC equals total cost. Total revenue curve represents prices times quantity sold. As production beings, total cost will rise. As production continues, revenues will increase and hopefully be greater than total cost eventually. Losses occur when vendors cost exceed his or her revenues. Shutdowns occur when a firm revenues are less than variable costs. Consumers would purchase more if producers lower price for flowers. As well as rising the price, consumers would buy less. When marginal revenue is greater than marginal cost, increasing product can increase profits. When marginal revenue is less than marginal cost decreasing products can increase profits. Profits lie between the relationship of price and average total cost. If average total revenue is greater than average total cost then profits are good and firm is earning in access. Average total cost equals total cost divided by quantity. Normal or breakeven point occurs when owners revenues covers his or her costs of doing business. Total revenue equals total cost and profits equals average total cost, then profits are normal or at breakeven. If businesses shut down right away, they still have to pay some costs. In turn, most try to stay open long enough to cover these costs. Price equals marginal revenue equals marginal cost equals minimum average total cost. There is no incentive to enter or exit the market. Owners are making normal profits.

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Monopoly: Who is in control?

Our economy runs on competition. We can choose what type of gas to buy, for instance, from the different competitors controlling gas stations. Gas stations need to compete with other gas stations for business, mostly by prices. If people continue to pass up one gas station because its prices are too high, then it will 35

eventually go out of business. And vice versa, if the prices are too low and cannot cover costs of production, then it will also go out of business. In 1980, Standard Oil Company, owner John D. Rockefeller, he owned the only Oil Company. Profits and prices were low in oil. Rockefeller bought the oil that other men drilled, then refined it, and sold it for a profit. Competition squeezed profits and Rockefeller squeezed competition. Many did not like the Standard Oil Company and blamed Rockefeller. He set prices where standard oil could make the highest profits. The court outlawed all monopolies just those unreasonable to anti-competition. In 1911, Rockefeller monopoly was shattered by competition from Western oil and from refiners like Gulf and Texaco. The Sherman Act ended big trust. Free enterprise depended on competition for resources like oil and consumers dollars. Monopoly power over production and prices could not be tolerated. Monopoly like Standard Oil usually result in low production, high prices, and high profits. Monopoly are price setters and have control of their market. Setting a price, you should find a maximum price because you are able to sell as much as you would at a lower price. Alexander Graham Bell patent on the telephone expired. Competition meant lower prices and lower profits. Bell fought back. It slashed prices and rates to undercut some competitors and bought others out. In 1914, AT&T president sent their VP to Washington. He made a deal that would create what Vail called natural monopoly. The key part of this commitment was to refrain from buying up any more independent phone companies and provides longdistance connections. AT&T got government off its back and will Kingsbury commitment. AT&T would be able to set up long distance network. The government bought it 36

because AT&T would have reasonable rates and universal service. The bell system got so big that regulation of bell service became extremely difficult. think regulation failed at times.? During WWII, Bell labs developed microwave technology, ability to send sound through air. In the 1960 Goeken and McGowan discovered how to use microwaves. Bill McGowan, he ability to provide the then-existing technology, microwave, as a competitive service to what had been a monopoly in long distance communicative services. elecommunications went about switching and communicating between points,?Henry Geller. Richard Gill, e sell a fall in product when producing more and more of a product, what economics call economies of scale. After reaching a certain level of production, most firms costs per unit of output tend to rise. But they may not. Over a range of production, the cost per unit, the average cost of production, might slope downward as one company produces more and more units of telephone service or electric power. When we have falling average costs, we have a natural monopoly. Where natural monopolies exist some form of regulation does seem to be needed. And fair rates of return and reasonable prices will exist. Eastman invented film and pictures. Now anyone could take pictures and have lasting memories. His inventions were ground breakers and for protection he turned to a basic constitutional right, the patent. This patent gave Eastman a 17 year head start. Patent protection at each stage of new tech was a barrier against would-be competitors. Competition is basic to American philosophy. Peter Cartensen, ?The person who develops a lasor or important piece of modern technology takes big risks, deserves to have those compensated. It functions to reward the most desirable invention and gives the 37

inventor a monopoly.?The patent gave Eastman labs time to invent color photography, instamatics, and home movies. Hollywood built dreams and fantasies on Kodak technology. Quality was good. Kodak had no serious competiton. So prices weren low, but affordable. Nobody disliked Kodak. Kodak could make their products at their own pace, without competition. Fuji challenges Kodak. Kodak delayed negotiations while Fuji quickly offered $7million. Kodak must now set prices according to competition. There will always be someone coming out with a cheaper product, a better product, or a different product that will draw crowds away from the original product.

2004 Debate: Kerry and Bush at Arizona State University Kerry: The goal is that we must be secure and safe. We are not as safe as we ought to be and I will make sure that America is protected the way Kennedy and Roosevelt did. Bush: If we spread freedom and liberty around the world and have a comprehensive plan with a good,

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strong leadership, we can make sure that terrorists are kept out. Man: The flu kills thousands of people every year and we have a shortage of vaccines. Mr. President, can you explain this problem. Bush: We relied on a company outside of England and the vaccines, we soon realized, were contaminated. We stopped relying on England as soon as possible and are hoping that Canada will provide a better quality of vaccines. If you are healthy and younger, you do not need to receive a vaccine. Let prioritize and let others who need them, receive them. The best thing to do right now is do not get a flu vaccination if you are healthy. I have not gotten one to preserve. Kerry: Five million Americans have lost health insurance. One million in Arizona alone have no health insurance at all. 223,000 kids in Arizona have no health insurance. In Wisconsin, 82,000 under President Bush, do not have health insurance. We are a rich country, a highly industrialized country, and should make sure everyone has health insurance. Bush: We do not have money for more health insurance programs. Kerry: I choose Blue Cross and Blue Shield. Those who can afford the insurance shall receive it. Reinstating what Bush doesn use pay-as-yougo. Under his presidency, he has lost 1.6 million jobs, incomes have decreased, and businesses have fell dramatically. I will fight for the American worker and 39

raise student loans. This president has not vetoed one bill. Bush: Kerry voted to increase taxes. 277 times to wave budget caps. Pay-as-you-go means pay and he goes ahead and spends. Man: President Bush, what do you have to say about the many who lost jobs to people overseas and receive fractions of what their incomes were? Bush: Policies need to keep growing. Here some help ?get an education, go to a community college. In the 21st century, you need a college diploma. We need to solve problems before it is too late. Kids need to stay in school and emphasize on math and science, as well as graduate college to fill jobs of the 21st century. Kerry: Five point six trillion surplus toward deficits. Tuitions have been raised 35%, gas prices have increased, and prescription drugs have also raised 12%. Incomes have decreased. Not even unemployment benefits are helping workers to transition. Outsource will happen. I will make the playing field as fair as possible for American workers. I don want to subsidize. I will lower corporation taxes by 5% and this will help people to hire workers. Bush: Every family of four and who receives an income of $40,000 will receive a tax relief of $1700. Kerry: I support tax cuts. Pale grants have gone up ($5100) ?many have qualified, but they are not receiving them. 40

Bush: (on the topic of homosexuality) I don know. Treat people with tolerance and respect. All adults have the right to live they way they choose. I do not believing in changing the constitution ?or sanctity of marriage, it is between a man and a woman. Kerry: We are all God children. Cheney daughter is a lesbian and she would say his is who I am.?It is not a choice. People struggle who want to get married and cannot because of the law. We must respect this. I believe marriage is between a man and a woman. America has an unbelievable constitution. But we shouldn discriminate the freedom of choice. Kerry: (on the topic of abortion and unlimited stem cell research) I respect both views. I am Catholic. I believe I cannot legislate my article of faith. I also believe this is a woman choice. This information is between a woman, a doctor, and God. I am not a catholic president. I happen to be Catholic and am guided by faith. I fight against poverty, equality, and a clean environment. But abortion is up to a woman. Bush: I promote a culture of life. Every person matters. I know there are great differences. I would like to help reduce the number of abortions. It is a brutal practice. I want to ban the practice. I promote life. I promote adoption laws and abstinence programs. Man: Whose responsibility is it that health insurance has risen 36% over the past four years? Bush: Consumers aren involved in decision making practices. I want to make a way to be sure people are 41

involved. There are law suits that are aiding to the rise in health care. There are high costs because they do not use information and technology. We need to use higher technology and electronic medical records as well as move generic drugs to market faster. Kerry: It is because administration stood in the way of common sense. The president blocked less expensive drugs from Canada. Medicare is paid by you and seniors are on fixed income. The president made it illegal to bargain for prices. People are sicker with their disease due to this problem which I want to fix immediately. Bush: He has no record of health insurance or leadership in this field. Kerry: President has lied. I have passed 56 individual bills with the help of others. I helped to write them and aided to the expansion of health care. My plan is simple for health care. It gives you the choice, it is not a government plan. You choose your doctor and plan. You can keep your high premiums etc., but I feel you will like this one better. We give all children health care and 300% in poverty, net plus. There will be broader competition. If it is good enough for us, then it is good enough for you. Also, the age limit will be lowered to 55-64. I will offer this to America. Bush: If you raise medicare by 300%, then why be insured if government will pay for it. It will lead to poor quality.

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Kerry: I am not proposing government run programs. Bush: Your checks will continue to be recorded. Children need another plan. They will better rates of return. Kerry: oung take money out of social security.?Busy says. This is an invitation to disaster. Cuts benefits 2540%. President driving the largest deficit. We need to protect social security. I wont cut benefits and I wont privatize. I support middle class and creating jobs. Bush: Tax relief for married, who have children, and really if you pay taxes, you get a relief too. Man: Immigration is a problem in many areas. Eight thousand cross our borders everyday. What should we do? Bush: I see this as a security issue. As a human rights issue. We have thousands of people working security in the southern area. Many want our way of life. We have our minimum wage at $5.15/hr and yes we all know that better than fifty cents. Amnesty ?we have no need for illegal aliens. Kerry: The take home pay for Americans have not been this low since the 1920s. Illegal aliens have been leaking into the USA since 9/11 more and more. Some should be allowed citizenship, the ones who aren causing trouble, have jobs, and support their families. Bush: We will continue to increase security. I would like to disagree with you. We have been doing a lot better since 9/11. 43

Kerry: It has been long over due, seven years since we have raised the minimum wage. I will increase it to $7/hr in the next two years. The average income will raise by $3,800 a year. The tax cuts seem to only be benefiting the wealthy. I also plan to hold onto equal pay ?women .76 compared to men 1.0. Bush: I will continue to make sure the educational system works ?and the o child left behind?is doing great. If we find a problem, we will spend extra money to get it right. Kerry: I will not appoint judge the constitution. who do not back up

The military is overextended. I am going to double relief pressure, foreign policy, and working more efficiently with other nations. Bush broke faith with alliances. Bush: I work well with alliances. I will never turn over National Security to other nations. Kerry: I will never fail to protect our nation. Bush: I think we should expand assault weapon ban. Guns should not get involved with citizens. Neighborhoods are safer without them Kerry: I am a hunter and gun owner. I respect the 2nd amendment. I was a law enforcement officer and I broke up organized crime.

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We haven moved far along with affirmative action. We still have discrimination. We need to respect women. Too many still feel resistance of racism. If the president doesn reach out, how do we cross barriers. Bush: I have met with the black congressional carcus. We ought to have education. More minorities own a home than ever before. Faith plays a big part of my life. I pray a lot. Faith is very personal. I pray for my family, troops, wisdom. People can worship anything. Worship the way you see fit. I receive calmness from praying. Religion is important. I don impose it on others. I do believe that we should love thy neighbor as we love ourselves. God wants everybody to be fore. These are my principles. Kerry: Respect is faith. reedom is a gift from the almighty.?Bush states. Everything is a gift from the almighty. People find all ways to have faith. Two important ones are ove thy neighbor as we love ourselves. Love God with everything you have.?We are still separate and unequal school system. As president, I will respect everyone whether they have a religion or not. I pay compliments to Bush. After 9/11, I was moved by his speech. He was very genuine, we all were people, not democrats or republicans. I don care where the idea came from. I respect your idea, whether it came from a democrat or republican. Common ground makes us America. I have hope and possibilities for America.

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Bush: We worked together with democrats and republicans for many programs. Listen to these strong women (my wife and kids especially). Stand up straight and scowl. I love my wife and daughters. She is out campaigning and she told me didn want at first. I am lucky. Kerry: My mom who was in the hospital on her deathbed told me three important words, ntegrity, Integrity, Integrity.?I will never forget what she taught me that day. I love my wife and girls. They have a sense of what right and what wrong. They keep me honest and I am blessed. Closing Statements: Kerry: America is tested by division. We need to be reunited. I don care what your political affiliation is, I want your ideas. It will make us stronger. Together we can lift our schools, make more money, give health care to all Americans. I will never allow to have other countries veto our security. I love this country. We can reach higher. Our dreams and our hopes will get us there. Embark on this journey with me. With trust, help, and priviledge , I would like to lead this great nation to bigger and better opportunities. Thank you. God bless. Bush: I would like to refer to Tom Lee painting. See the day coming, not the day that has past. This shows great optimism. We have had an attack on our country and been through a recession. I want to make sure our country economy grows. I want to give children 46

education. I want to make health care insurance available and affordable. I want to win war on terrorism. I want to spread freedom and liberty. I am asking of your vote. Thank you.

Market Failure: Monopoly

A monopoly occurs when there is only one seller of a commodity. Two ways a monopoly can develop is through deliberate government policy and without the government intervention where one private firm takes over all competitors through a series of mergers. A marketing board is the most common form of monopoly. Even though a monopolist has no competitors, the monopolist could charge an even higher price. But he or she wouldnt because people would then buy less of the product and the firm would earn lower profits. Profit maximizing output is given by the intersection of

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marginal cost and marginal revenue curves is the same as we used to analyze perfect competition. The invisible hand works well in a competitive market. Consumer tastes were the ultimate authority in deciding the allocation of societys scarce resources. But without competition, a monopolist doesnt have to serve the consumers interests so directly. The invisible hand relies on three components. Self-interest leads to households to arrange their purchases so that marginal utility equals price. Self-interest leads firms to set output so that marginal revenue equals marginal cost. Computer firms marginal revenue and price are one and the same theory. These relationships imply that marginal utility for consumers equals marginal cost. Taxing a monopolist brings both a cost and a benefit public policy makers have considered other approaches, such as direct government regulation of monopolies, and the passing of the Canadian Competition Act. Because there are very large fixed cost involved, an industry becomes very monopolized. Telephone systems have a major start up cost. A natural monopoly is described as an average cost falling over the entire range of output. Once the firm becomes larger it can under price competitors, it may become or remain a monopolist. To cope with monopoly power there is to have direct government regulation of monopoly, rely on prosecutions through our Competition Act, and to rely on the discipline imposed by foreign competition when free trade is allowed. A fair rate return is a profit rate equal to what could be earned in a competitive industry, and to impose the corresponding regulation on price. Giving firms a chance to be caught up with technology or keep up the the times is called a lag. Regulation seems to serve monopolies which causes economists to be weary. Many business practices, rigging prices, and misleading advertising are defined as unlawful by legislation. Even since 1889, Canada has had some 48

form of Competition Act. The fines were trivial compared to the benefits that firms could derive from breaking the laws, secondly the interpretations of the Act set the precedent that a guilty verdict was warranted only if competition was completely eliminated, not just lessened, thirdly the Act was considered criminal not civil. There was a revision on the Competition Act in 1986 fines and prison terms were made stiffer

Market Failure: Oligopoly

An imperfect competition is made up of monopolistic competition, which together constitutes the majority of business operations today. This particular convenient store receives half of their revenues from slot machines and half from grocery end of the business. Casinos have bowling alleys, movie theaters, ice rinks, and full complements of entertainment services are offered. Casinos now also attract upscale travelers and family vacationers as well as gamblers. The bellagio hotel and casino houses a $300 million dollar art collection that brings in many art lovers. Visitors are also spending less 49

time gambling and more time and money on amusements and sightseeing. Service, architecture, location, and atmosphere all play an important role in helping casinos distinguish themselves from the pack but advertising is by far the most effective way to illustrate product differentiation in the industry. .

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